What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-27 · 138 added, 108 removed, 252 unchanged (49% of the section changed)

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Executive Overview and Trends in our Business

For 2022, we saw our net sales increase by over 4% and our business gain momentum when compared to 2021.

We attribute our success for the year to our ability to quickly adapt and execute in any environment.

Our philosophy of taking care of our customers by delivering best-in-class customer service continues to drive strong results and growth.

From a macroeconomic perspective, we believe discretionary consumer spending has been under pressure as gas and groceries have become a larger percentage of the average American paycheck due to inflation.

Interest rates have increased resulting in a decrease in existing home sales and the postponement of large remodeling projects.

These challenges and economic concerns about a potential recession resulted in unit sales volumes to decline slightly across our core business segments.

From a microeconomic perspective, shipping costs, commodities, and labor have become more expensive since the beginning of 2021.

Lead times from Asia (the time it takes to order a product and arrive at one of our distribution centers in the North America) doubled in early 2022 from what lead times were in a normal environment, and have only recently come down from those highs.

In light of these dynamics, we have implemented prices increases covering our costs and we have invested into our inventory to ensure fill rates with our customers remain high.

As we look forward, we expect to see the investments we have made into our customer relationships pay off with new business wins.

Further, we believe we will benefit when lower costs flow through our income statement during the second half of the year, as some shipping costs and commodity prices have decreased from 2022 highs.

We also expect to see our inventory continue to come down, which would result in an improvement in working capital and cash flows during 2023.

Net sales during 2023 decreased by 0.7% when compared to 2022.

Hardware and Protective Solutions, which is our largest segment making up 72.8% of our net sales, led the way with an increase of 0.6%.

Offsetting this was a slight decrease in our Robotics and Digital Solutions segment and a decrease in our Canadian business.

Products across our business are primarily used by DIYers and small contractors for repair, maintenance, and remodel projects.

Because repair and maintenance projects are necessary no matter the economic environment, we believe our business is generally resilient to economic downturns.

However, remodel projects are more dependent upon macroeconomic variables, including existing home sales.

According to the National Association of Realtors, existing home sales in the U.S.

declined by 19% versus 2022, totaling 4.09 million.

This was a headwind for our top line results during the year.

That said, we made tremendous progress on the operational side of our business.

After investing into inventory to ensure we had enough product to stock our customer’s shelves during 2021 and 2022 when the global supply chain was constrained, our inventory levels returned to normal during the fourth quarter.

As a result of working this $180 million out of our inventory channels, we saw a meaningful working capital benefit, which allowed us to pay down $166 million of debt during 2023.

Our competitive moat, which consists of our 1,100 member field sales and service team, our ability to ship direct to the retail locations of our customers rather than their distribution network, and our innovative Hillman-owned brands continue to set us apart from the competition.

As such, we launched multiple new business wins during the year and were named vendor of the year by Mid-States Distributing and Tractor Supply Company.

We are pleased with the progress we made during 2023.

Looking to 2024, we remain committed to driving value for our stakeholders, and believe that our competitive moat and long-standing relationships with customers will allow us to continue to win.

Impact of Global Economic Conditions on our Results of Operation

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This puts pressure on our suppliers to increase prices to us.

dollar increased in value relative to the CNY by approximately by 8.3% in 2022, decreased by 2.6% in 2021, and decreased by 6.5% in 2020.

dollar increased in value relative to the Taiwan dollar by approximately 10.8% in 2022, decreased by 1.4% in 2021, and decreased by 7.9% in 2020.

dollar increased in value relative to the CNY by approximately by 2.9% in 2023, increased by 8.3% in 2022, and decreased by 2.6% in 2021.

dollar decreased in value relative to the Taiwan dollar by approximately 0.4% in 2023, increased by 10.8% in 2022, and decreased by 1.4% in 2021.

22 | December 30, 2023 Form 10-K

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We have a practice of hedging some of our Canadian subsidiary's purchases denominated in U.S.

dollar increased in value relative to the Canadian dollar by approximately 5.7% in 2022, decreased by 0.2% in 2021, and decreased by 1.9% in 2020.

dollar decreased in value relative to the Canadian dollar by approximately 2.4% in 2023, increased by 5.7% in 2022, and decreased by 0.2% in 2021.

We import products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions.

tariffs on steel and aluminum and other imported goods has increased our product costs and required us to increase prices on the affected products.

Recent developments

In the first quarter of 2023, we realigned our Canada segment to include the Canada portions of the Protective Solutions and MinuteKey businesses, which are now operating under the Canada segment leadership team.

Previously, the results of the Canada portion of the Protective Solutions business were reported in the Hardware and Protective Solutions segment and the Canada portion of the MinuteKey business was reported in the Robotics and Digital Solutions segment and were operating under those respective segment leadership teams.

Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation.

In the fourth quarter of 2023, we evaluated a specific product line and decided to exit certain retail locations and markets, which reduced the expected future cash flows from this product line and valuation of certain intangible assets and inventory.

As a result, we recognized an impairment charge of $19.6 million during the fourth quarter of 2023 to write down the carrying values of intangible assets to their fair value.

The Impairment charge was split between the following asset categories:

$15.6 million for customer relationships, $2.2 million for technology and patents, and $1.7 million for trademarks - other.

The impairment charge is included in other expense (income), net in the accompanying consolidated statements of comprehensive loss.

We also recorded a $5 million inventory valuation adjustment which was recorded in cost of sales in the accompanying consolidated statements of comprehensive loss.

Financial Summary and Other Key Metrics

• Net sales for the year ended December 31, 2022 were $1,486.3 million compared to net sales of $1,426.0 million for the year ended December 25, 2021, an increase of approximately $60.4 million or 4.2%.

52/53 Week Comparison

Fiscal 2023 consisted of 52 weeks or 252 shipping days as compared to 53 weeks or 256 shipping days in fiscal 2022, which should be taken into account when comparing each period.

Shipping days are defined as non-holiday week-days, Monday through Friday of each week of the fiscal year.

• Net sales for the year ended December 30, 2023 were $1,476.5 million compared to net sales of $1,486.3 million for the year ended December 31, 2022, a decrease of approximately $9.9 million or 0.7%.

The decrease was primarily driven by the decrease in shipping days due to the 53rd week in the year ended December 31, 2022.

Net sales for the year ended December 30, 2023 were $5.86 million per shipping day, compared to $5.81 million per shipping day for the year ended December 31, 2022, an increase of approximately $53.0 thousand per shipping day.

• Net loss improved to $9.6 million, or $(0.05) per diluted share, compared to a net loss of $16.4 million, or $(0.08) per diluted share for the year ended December 31, 2022.

• Adjusted EBITDA (1) totaled $219.4 million versus $210.2 million in the year ended December 31, 2022.

• The improvement in our consolidated income from operations in 2022 was driven primarily by $153.3 million in price increases, offset by an increased cost of goods sold driven by inflation, variable selling expenses, variable compensation, travel and entertainment expense, litigation expense, and increased labor and transportation costs.

(1) Adjusted EBITDA is a non-GAAP financial measure.

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23 | December 30, 2023 Form 10-K

52/53 Week Comparison

Fiscal 2022 consisted of 53 weeks or 256 shipping days compared to 52 weeks or 253 shipping days in fiscal 2021, which should be taken into account when comparing each period.

Shipping days are defined as non-holiday week days, Monday through Friday of each week of the fiscal year.

Results of Operations

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Cost of sales (exclusive of depreciation and amortization shown separately below) 828,956 56.1% 846,551 57.0% 859,557 60.3%

Selling, general and administrative expenses 480,993 32.4% 437,875 30.7% 398,472 29.1%

Selling, warehouse, general and administrative expenses

452,110 30.6% 480,993 32.4% 437,875 30.7%

Depreciation 59,331 4.0% 57,815 3.9% 59,400 4.2%

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Management fees to related party — —% — —% 270 —%

Other income, net (1,119) (0.1)% (2,778) (0.2)% (5,250) (0.4)%

Other expense (income), net

12,843 0.9% (1,119) (0.1)% (2,778) (0.2)%

Income from operations 60,928 4.1% 39,893 2.7% 10,314 0.7%

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Gain on change in fair value of warrant liability — —% — —% (14,734) (1.0)%

Loss (income) on mark-to-market adjustment of interest rate swap — —% (1,685) (0.1)% 601 —%

Income on mark-to-market adjustment of interest rate swap

— —% — —% (1,685) (0.1)%

Loss before income taxes (7,382) (0.5)% (14,667) (1.0)% (50,116) (3.5)%

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2022 2022 vs.

Year Ended December 31, 2022 % of Net Sales Year Ended December 25, 2021 % of Net Sales $ Change % Change Year Ended December 26, 2020 % of Net Sales $ Change % Change

2023 % of Net Sales 2022 % of Net Sales $ Change % Change 2021 % of Net Sales $ Change % Change

Hardware and Protective Solutions $ 1,074,619 72.8 % $ 1,068,734 71.9 % $ 5,885 0.6 % $ 1,017,594 71.4 % $ 51,140 5.0 %

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Canada revenues consist primarily of the delivery to Canadian customers of fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, personal protective equipment, and identification items as well as in-store merchandising services for the related product category.

The improvement in total net sales during 2022 was driven primarily by $153.3 million of price increases, partially offset by lower demand for COVID-19 protective and cleaning products and lower volume overall.

Net sales for the year ended December 31, 2022 were $5.8 million per shipping day, compared $5.6 million per shipping day for the year ended December 25, 2021, an increase of approximately $0.2 million per shipping day.

The increase was primarily driven by the factors described below:

The decrease in total net sales during 2023 was driven primarily by decreased volume of $42.0 million due primarily to the 53rd week in 2022 partially offset by $38.4 million of price increases.

Net sales for the year ended December 30, 2023 were $5.86 million per shipping day, compared $5.81 million per shipping day for the year ended December 31, 2022, an increase of approximately $53.0 thousand per shipping day.

The impact of the 53rd week of 2023 was approximately $15.7 million in sales.

The decrease was primarily driven by the factors described below:

Hardware and Protective Solutions increased $5.9 million due to the following:

• Hardware sales increased $94.4 million driven by $106.8 million in price increases in response to inflationary pressures in the market, partially offset by decreased volume driven by lower demand.

• Protective equipment sales decreased by $42.6 million due to lower demand for COVID-19 protective and cleaning products in 2022, partially offset by price increases of $9.7 million.

Robotics and Digital Solutions sales increased $0.4 million due to $17.1 million in price increases in response to inflationary pressures, offset by lower demand for auto key duplication and engraving sales.

Canada net sales increased $8.2 million primarily due to $19.8 million in price increases in response to inflationary pressures in the market partially offset by decreased volume driven by lower demand and a $6.0 million unfavorable impact of the exchange rate from Canadian dollars to U.S.

• Hardware sales increased $31.0 million primarily driven by $20.9 million in price increases in response to inflationary cost pressures in the supply chain, and $10.2 million in increased volume driven due to new business wins.

• Protective equipment sales decreased by $25.1 million primarily due to a $28.2 million decrease in volume driven in part by $16.8 million of COVID-19 related sales in 2022 with no material comparable COVID-19 sales in 2023, partially offset by price increases of $3.0 million.

Robotics and Digital Solutions sales decreased $0.2 million primarily due to decreases in full-service key and engraving volume.

Canada net sales decreased $15.5 million primarily due to an $8.1 million decrease in volume driven by lower demand as well as a $6.2 million unfavorable impact of the exchange rate from Canadian dollars to U.S.

Cost of Sales (excluding depreciation and amortization)

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2022 2022 vs.

Year Ended December 31, 2022 % of Segment Net Sales Year Ended December 25, 2021 % of Segment Net Sales $ Change % Change Year Ended December 26, 2020 % of Segment Net Sales $ Change % Change

2023 % of Segment Net Sales 2022 % of Segment Net Sales $ Change % Change 2021 % of Segment Net Sales $ Change % Change

Hardware and Protective Solutions $ 659,895 61.4% $ 669,500 62.6% $ (9,605) (1.4)% $ 677,755 66.6% $ (8,255) (1.2)%

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Consolidated $ 828,956 $ 846,551 $ (17,595) $ 859,557 $ (13,006)

Hardware and Protective Solutions cost of sales as a percentage of net sales decreased primarily due to an inventory valuation adjustment in our Hardware and Protective Solutions segment of $32.0 million in 2021 related to our COVID-19 related products, partially offset by increased cost of products, inbound transportation costs, and personnel costs in 2022.

Our Robotics and Digital Solutions cost of sales as a percentage of net sales decreased primarily due to a shift in product mix from full-service to self-service keys.

Hardware and Protective Solutions cost of sales as a percentage of net sales decreased primarily due to the impact of the price increases referenced above partially offset by higher product and personnel costs along with an inventory valuation adjustment of $5.0 million in the fourth quarter of 2023.

25 | December 30, 2023 Form 10-K

Canada cost of sales as a percentage of net sales decreased due to a higher mix of retail sales along with improved margins in our industrial business based on the pricing actions described above.

Our Robotics and Digital Solutions cost of sales as a percentage of net sales decreased primarily due to a shift in product mix from full-service to self-service keys.

Canada cost of sales as a percentage of net sales increased primarily due to higher freight costs.

Selling, Warehouse, and General and Administrative Expenses

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2022 2022 vs.

Year Ended December 31, 2022 % of Segment Net Sales Year Ended December 25, 2021 % of Segment Net Sales $ Change % Change Year Ended December 26, 2020 % of Segment Net Sales $ Change % Change

2023 % of Segment Net Sales 2022 % of Segment Net Sales $ Change % Change 2021 % of Segment Net Sales $ Change % Change

Hardware and Protective Solutions $ 312,436 29.1 % $ 306,456 28.7 % $ 5,980 2.0 % $ 285,050 28.0 % $ 21,406 7.5 %

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Hardware and Protective Solutions SG&A increased in 2023 due to the following:

• Selling expense increased by $11.1 million primarily due to variable selling expenses, variable compensation, and travel and entertainment expense in the year ended December 31, 2022.

• Warehouse expense increased $1.6 million due to inflation in labor and shipping costs.

• General and administrative (“G&A”) decreased by $1.6 million.

The decrease was primarily driven by reduced stock compensation expense and lower legal and consulting expenses associated with the Merger in the prior year, partially offset by increased variable compensation.

• General and administrative (“G&A”) increased by $4.2 million.

The increase was primarily driven by increased variable compensation along with increased investment into information technology.

Robotics and Digital Solutions SG&A increased in 2023 due to the following:

• Selling expense increased by $4.5 million primarily due to variable selling expenses related to self-service key sales, variable compensation, and travel and entertainment expense in the year ended December 31, 2022.

• G&A increased by $20.8 million.

The increase was primarily related to $32.9 million of legal and consulting expense associated with our litigation with Hy-Ko (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

This was offset by decreased variable compensation.

• Selling expense increased by $1.3 million primarily due to higher variable selling expenses related to self-service key sales and increased variable compensation.

• Warehouse decreased by $1.9 million primarily due to the shift from full-service keys, which have a higher warehousing cost, to self-service keys.

• G&A decreased by $30.8 million.

The decrease was primarily related to reduced legal and consulting expense in 2023 as 2022 saw $32.9 million in legal expense associated with the litigation with Hy-Ko Products Company, LLC.

This was offset by increased variable compensation.

Canada SG&A decreased in 2023 due to the following:

• Warehouse expense decreased by $2.5 million primarily due to lower variable costs driven by the lower sales volume described above.

• G&A increased by $1.9 million primarily due to increased variable compensation and stock compensation expense.

• G&A decreased by $0.9 million primarily due to decreased variable compensation and stock compensation.

Other Operating Expenses

Depreciation expense decreased $1.6 million due to certain assets becoming fully depreciated.

Depreciation expense increased $1.5 million due to increased capital spend on merchandising racks, and facility relocations.

Amortization expense was comparable to prior year.

The $0.9 million increase was primarily due to the acquisition of Monkey Hook in the current year.

In the year ended December 31, 2022, other income consisted primarily of a $1.1 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob, (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information).

In the year ended December 25, 2021, other income consisted primarily of a $1.8 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob.

In the year ended December 30, 2023, other expense (income), net consisted primarily of a $19.6 million impairment charge related to the write down of intangible assets, (see Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for additional information) and a $4.9 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information).

We also recorded exchange rate gains of $0.4 million in the year ended December 30, 2023.

In the year ended December 31, 2022, other expense (income), net consisted primarily of a $1.1 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob.

26 | December 30, 2023 Form 10-K

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2022 2022 vs.

Year Ended December 31, 2022

December 25, 2021

$ Change % Change Year Ended December 26, 2020 $ Change % Change

2023 2022 $ Change % Change 2021 $ Change % Change

Hardware and Protective Solutions $ 8,366 $ 20,742 $ (12,376) (59.7) % $ (14,650) $ 35,392 241.6 %

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Total segment income from operations $ 60,928 $ 39,893 $ 21,035 52.7 % $ 10,314 $ 29,579 286.8 %

Income from operations in our Hardware and Protective Solutions segment increased $38.1 million due to the changes in sales, cost of sales, and SG&A expenses described above.

Income from operations in our Robotics and Digital Solutions segment decreased by $19.9 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above, along with a decrease of $0.8M in other income driven by the changes in revaluation of the contingent consideration described above.

Income from operations in our Hardware and Protective Solutions segment decreased $12.4 million due to the changes in net sales, cost of sales, SG&A expense, and other expense (income), net described above.

Depreciation expense increased by $3.4 million due to increased capital spend on merchandising racks, and facility relocations.

Income from operations in our Robotics and Digital Solutions segment increased by $39.4 million primarily due to the $32.9 million in lower legal expense described above, along with an increase of $3.8 million in other income driven by the changes in revaluation of the contingent consideration described above.

Depreciation expense decreased by $2.0 million due to certain assets becoming fully depreciated.

Canada's income from operations increased by $11.5 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above.

Canada also recorded exchange rate losses of $0.2 million in 2022 compared to gains of $0.9M in 2021.

Additionally, Canada's depreciation expense decreased $1.5M due to certain assets becoming fully depreciated.

Canada's income from operations decreased by $6.0 million primarily due to the changes in sales, cost of sales, and SG&A expenses described above.

Canada also recorded exchange rate gains of $0.1 million in 2023 compared to losses of $0.2 million in 2022.

Income (Loss) Before Income Taxes

Interest expense, net, decreased $14.2 million due to the refinancing activities in the third quarter of 2021 leading to lower outstanding debt balances in the year ended December 31, 2022.

As part of the refinancing activity in 2021, we incurred charges of $8.1 million (see Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information).

The mark-to-market adjustment on the warrants was eliminated with the redemption of the warrants in the fourth quarter of 2021.

The market-to-market adjustment on interest rate swaps was eliminated with the refinancing activity in 2021.

See Note 8 - Warrants and Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information on the warrants and swaps, respectively.

Interest expense, net, increased $13.8 million due to higher interest rates in the year ended December 30, 2023 (see Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information).

Income Taxes:

For the year ended December 31, 2022 and December 25, 2021 the effective income tax rate was (12.1)% and 23.5%, respectively.

The Company recorded an income tax provision for the year ended December 31, 2022 of $1.8 million, and an income tax benefit for the year ended December 25, 2021 of $11.8 million.

For the years ended December 30, 2023 and December 31, 2022 the effective income tax rate was (29.9)% and (12.1)%, respectively.

The Company recorded an income tax provision for the year ended December 30, 2023 of $2.2 million, and an income tax provision for the year ended December 31, 2022 of $1.8 million.

In 2023, the Company's effective tax rate differed from the U.S.

federal statutory tax rate primarily due to withholding taxes on distributions from our Canadian subsidiary.

In addition, the effective tax rate differed due to state and foreign income taxes and certain non-deductible expenses.

In 2022, the Company's effective tax rate differed from the U.S.

federal statutory tax rate primarily due to Global Intangible Low-Taxed Income ("GILTI") from the Canadian subsidiary.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations " of our Form 10-K for fiscal 2022.

The amounts presented therein and related comparisons do not reflect the realignment of our Canada operating segment that occurred in fiscal 2023, as more fully described in Note 21 - Segment Reporting and Geographic Information.

27 | December 30, 2023 Form 10-K

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Management fees — — 270

Facility exits (1)

Restructuring (2)

Restructuring and other (1)

3,031 2,617 910

1 unchanged sentence

339 32,856 12,602

Acquisition and integration expense (4)

Transaction and integration expense (3)

1,754 2,477 11,123

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Buy-back expense (5)

Refinancing costs (7)

Refinancing costs and other (6)

Inventory revaluation charges (7)

Anti-dumping duties (8)

Impairment charges (9)

Adjusted EBITDA $ 219,360 $ 210,249 $ 207,418

(1) Facility exits include costs associated with the closure of facilities in Parma, Ohio, San Antonio, Texas, and Dallas, Texas.

(2) Restructuring includes restructuring costs associated with restructuring in our Canada segment announced in 2018, including facility consolidation, stock keeping unit rationalization, severance, sale of property and equipment, and charges relating to exiting certain lines of business.

See Note 17 - Restructuring of the Notes to the Consolidated Financial Statements for additional information.

Finally, includes consulting and other costs associated with streamlining our manufacturing and distribution operations.

(1) Restructuring and other includes consulting and other costs associated with severance related to our distribution center relocations and corporate restructuring activities.

2023 includes costs associated with the Cybersecurity Incident that occurred in May 2023, see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information.

(2) Litigation expense includes legal fees associated with our litigation with KeyMe, Inc.

and Hy-Ko Products Company LLC (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

26 | December 31, 2022 Form 10-K

(4) Acquisition and integration expense includes professional fees, non-recurring bonuses, and other costs related to historical acquisitions, including the merger with Landcadia III (see Note 3 - Merger Agreement of the Notes to Condensed Consolidated Financial Statements for additional information) and the secondary offering of shares in 2022.

(3) Transaction and integration expense includes professional fees, non-recurring bonuses, and other costs related to acquisitions, including the merger with Landcadia III (see Note 3 - Merger Agreement of the Notes to Consolidated Financial Statements for additional information) and the secondary offerings of shares in 2022 and 2023.

(4) The warrant liabilities are marked to market each period end.

(see Note 8 - Warrants of the Notes to Consolidated Financial Statements for additional information).

28 | December 30, 2023 Form 10-K

(5) Infrequent buy backs associated with new business wins.

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(8) Anti-dumping duties assessed related to the nail business for prior year purchases.

(9) In the fourth quarter of 2023, we recorded an impairment charge in our Hardware and Protective Solutions segment of $24.6 million, primarily related to review of certain product offerings.

In the fourth quarter of 2023, we evaluated a specific product line and decided to exit certain retail locations and markets, which reduced the future cash flows from this product line and impacted the lower of cost or market valuation of inventory.

As a result of this review we impaired $19.6 million of intangible assets and recorded inventory revaluation charges of $5.0 million.

The following tables present a reconciliation of segment operating income, the most directly comparable financial measures under GAAP, to segment Adjusted EBITDA for the periods presented (amounts in thousands).

Certain amounts in the prior year presentation between segments were reclassified to conform to the current year’s presentation:

Year Ended December 30, 2023 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated

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Stock compensation expense 9,988 1,251 765 12,004

Restructuring 2,342 275 — 2,617

Restructuring and other

2,549 372 110 3,031

Litigation expense — 339 — 339

Acquisition and integration expense 2,231 246 — 2,477

Transaction and integration expense

1,561 193 — 1,754

Change in fair value of contingent consideration — (4,936) — (4,936)

Impairment charges

24,600 — — 24,600

Adjusted EBITDA $ 123,163 $ 80,886 $ 15,311 $ 219,360

Year Ended December 31, 2022 Hardware and Protective Solutions Robotics and Digital Solutions Canada Consolidated

Operating (loss) income $ (17,185) $ 23,558 $ 3,941 $ 10,314

Operating income

$ 20,742 $ 3,541 $ 15,610 $ 39,893

Depreciation and amortization 72,266 42,905 4,839 120,010

Stock compensation expense 11,057 1,479 988 13,524

Management fees 232 38 — 270

Restructuring 403 10 497 910

Restructuring and other

2,342 275 — 2,617

Litigation expense — 32,856 — 32,856

Acquisition and integration expense 9,869 1,254 — 11,123

Buy-back expense 2,000 — — 2,000

Inventory revaluation charges 32,026 — — 32,026

Asset impairment charges 3,995 — — 3,995

Transaction and integration expense

2,231 246 — 2,477

Change in fair value of contingent consideration — (1,128) — (1,128)

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Management fees 232 38 — 270

Facility exits 3,894 — — 3,894

Restructuring 74 — 4,828 4,902

Restructuring and other

403 10 497 910

Litigation expense — 12,602 — 12,602

Acquisition and integration expense 8,284 1,548 — 9,832

Corporate and intersegment adjustments 70 (70) — —

Transaction and integration expense

9,869 1,254 — 11,123

Buy-back expense 2,000 — — 2,000

Inventory revaluation charges 32,026 — — 32,026

Anti-dumping duties

3,995 — — 3,995

Change in fair value of contingent consideration — (1,806) — (1,806)

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Operating Cash Flows:

Operating cash flows for the year ended December 31, 2022 were favorably impacted by reducing inventory as part of the company's ongoing strategic initiative to lower inventory on hand during 2022 following the build up of inventory in prior year due to inflation and recent supply chain challenges offset by reduced accounts payable resulting from lower inventory purchases.

Net cash provided by operating activities for the year ended December 25, 2021 was unfavorably impacted by increased inventory driven by inflation and higher on hand amounts to maintain service levels with extended lead times, and payments made for long term incentive programs and other variable compensation.

Operating cash flows for the year ended December 30, 2023 were favorably impacted by reducing inventory as part of the Company's ongoing strategic initiative to lower inventory on hand during 2023.

Net cash provided by operating activities for the year ended December 31, 2022 were favorably impacted by reducing inventory as part of the Company's ongoing strategic initiative to lower inventory on hand during 2022 following the buildup of inventory in prior year due to inflation and recent supply chain challenges offset by reduced accounts payable resulting from lower inventory purchases.

Investing Cash Flows:

Capital Expenditures:

Cash of $69.6 million, $51.6 million, and $45.3 million, used in the years ending December 31, 2022, December 25, 2021 and December 26, 2020, respectively, to invest in our investment in new key duplicating kiosks and machines, merchandising racks, and new distribution facilities in the HPS segment.

Cash of $65.8 million, $69.6 million, and $51.6 million, was used in the years ending December 30, 2023, December 31, 2022 and December 25, 2021, respectively, to invest in new key duplicating kiosks and machines, merchandising racks, and new distribution facilities in the Hardware and Protective Solutions segment.

Acquisitions:

In the year ended December 31, 2022, we acquired Monkey Hook for approximately $2.5 million (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).

In the year ending December 25, 2021, we acquired Oz Post International, LLC ("OZCO") for approximately $39.8 million.

On December 5, 2023, the Company completed its acquisition of AjustLock for approximately $1.4 million, which includes a $0.1 million hold-back payable to the seller (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).

In the year ended December 31, 2022, we acquired Monkey Hook for approximately $2.5 million.

In the first quarter of 2023, the hold-back of $0.3 million was paid to satisfy the full purchase price.

In the year ending December 25, 2021, we acquired Oz Post International, LLC ("OZCO") for approximately $39.8 million (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).

30 | December 30, 2023 Form 10-K

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The term loan matures on July 14, 2028.

The Company used $10.6 million of cash for principal payments on the senior term loans.

As of July 2023, the delayed draw term loan facility expired.

The Company used $88.5 million of cash for principal payments on the senior term loan.

As of August 2023, the Company made a $80.0 million prepayment against the outstanding term loan balance without payment of a premium or penalty.

As of December 30, 2023, we have outstanding borrowings of $751.9 million on the term loan.

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or (ii) 91 days prior to the maturity date of our term loans.

Our revolver draws, net of repayments, provided cash of $21.0 million in the year ended December 31, 2022.

We used revolver draws to fund the litigation with Hy-Ko (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

Our revolver repayments, net of draws, used cash of $72.0 million in the year ended December 30, 2023 as part of the Company's initiative to pay down the term loan.

During the year ended December 31, 2022, we used revolver draws to fund the litigation with Hy-Ko (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

Stock Option Exercises:

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We believe that projected cash flows from operations and ABL Revolver availability will be sufficient to fund working capital and capital expenditure needs for the next 12 months.

As of December 31, 2022, the ABL Revolver had an outstanding amount of $72.0 million and outstanding letters of credit of $35.9 million, leaving $197.6 million of available borrowings as a source of liquidity.

Our material cash requirements for known contractual obligations include, debt, and lease obligations, each of which are discussed in more detail earlier in this section and in the footnotes to the consolidated financial statements, along with capital expenditures.

As of December 30, 2023, the ABL Revolver did not have an outstanding balance and had outstanding letters of credit of $40.9 million, leaving $246.8 million of available borrowings as a source of liquidity.

Our material cash requirements for known contractual obligations include, debt, and lease obligations, each of which are discussed in more detail earlier in this section and in the footnotes to consolidated financial statements, along with capital expenditures.

We expect to spend between $65-$75 million for capital expenditures in 2024.

Our future investments will depend primarily on the builds of new key duplicating kiosks and machines, merchandising racks, facility relocations, and IT projects that we undertake and the timing of these expenditures.

Our future investments will depend primarily on the builds of new key duplicating kiosks and machines, merchandising racks, and IT projects that we undertake and the timing of these expenditures.

We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current distribution needs and are fulfilled by our suppliers within the short term.

Our working capital (current assets minus current liabilities) position of $416.2 million as of December 31, 2022 represents an increase of $25.2 million from the December 25, 2021 level of $391.0 million.

Our working capital (current assets minus current liabilities) position of $324.9 million as of December 30, 2023 represents a decrease of $91.3 million from the December 31, 2022 level of $416.2 million.

We expect to generate sufficient operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets, although there can be no assurance of our ability to do so.

However, disruption and volatility in the global capital markets, could impact our capital resources and liquidity in the future.

31 | December 30, 2023 Form 10-K

Related Party Transactions:

The information required by this Item is set forth in the section entitled Related Party Transactions in the 2024 Proxy Statement and is hereby incorporated by reference into this Form 10-K.

29 | December 31, 2022 Form 10-K

Critical Accounting Policies and Estimates:

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In 2023, 2022, and 2021, with the assistance of an independent third-party specialist, management assessed the value of our reporting units based on a discounted cash flow model and multiple of earnings.

Assumptions critical to our fair value estimates under the discounted cash flow model include the projected net sales and earnings growth rates and the discount rates.

Assumptions critical to our fair value estimates under the discounted cash flow model include the projected net sales and EBITDA growth rates and the discount rates.

The results of the quantitative assessments in 2023, 2022, and 2021 indicated that the fair value of each reporting unit was in excess of its carrying value.

Significant assumptions used in the determination of the estimated fair values of the reporting units are the projected net sales and earnings growth rates and the discount rate.

The projected net sales and earnings growth rates are dependent on overall market growth rates, the competitive environment, inflation and our ability to pass price increase along to our customers, relative currency exchange rates, and business activities that impact market share.

Significant assumptions used in the determination of the estimated fair values of the reporting units are the projected net sales and EBITDA growth rates and the discount rate.

The projected net sales and EBITDA growth rates are dependent on overall market growth rates, the competitive environment, inflation and our ability to pass price increase along to our customers, relative currency exchange rates, and business activities that impact market share.

As a result, the growth rate could be adversely impacted by a sustained deceleration in category growth, devaluation of the U.S.

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Our discount rate may be impacted in the future by adverse changes in the macroeconomic environment and volatility in the equity and debt markets.

We performed sensitivity analyses for the Hardware Solutions and Protective Solutions reporting units during our annual impairment testing, utilizing reasonably possible changes in the assumptions for the discount rate, shorter-term revenue growth rates and earnings growth rates to demonstrate the potential impacts to the estimated fair values.

While our fourth quarter 2022, impairment test determined the fair value of the Hardware Solutions reporting unit exceeded its carrying value, the excess of the fair value over the carrying value of the reporting unit was approximately 4% of the carrying value.

An increase, in isolation, to the discount rate of 30 basis points, a decrease of 50 basis points in the projected revenue growth assumption, or a decrease of 40 basis points in the projected earnings growth, could each result in the fair value of the reporting unit being less than its carrying value.

Similarly, as of our fourth quarter 2022 impairment test, the fair value of the Protective Solutions reporting unit exceeded its carrying value by approximately 6% of the carrying value.

An increase, in isolation, to the discount

We performed sensitivity analyses for the Hardware Solutions and Protective Solutions reporting units during our annual impairment testing, utilizing reasonably possible changes in the assumptions for the discount rate, shorter-term revenue growth rates and EBITDA growth rates to demonstrate the potential impacts to the estimated fair values.

While our fourth quarter 2023, impairment test determined the fair value of the Hardware Solutions reporting unit exceeded its carrying value, the excess of the fair value over the carrying value of the reporting unit was

32 | December 30, 2023 Form 10-K

rate of 40 basis points, a decrease of 70 basis points in the projected net sales growth assumption, or a decrease of 90 basis points in the projected earnings growth, would each result in the fair value of the reporting unit being less than its carrying value.

approximately 4% of the carrying value.

An increase, in isolation, to the discount rate of 30 basis points, a decrease of 50 basis points in the projected revenue growth assumption, or a decrease of 40 basis points in the projected EBITDA growth, could each result in the fair value of the reporting unit being less than its carrying value.

Similarly, as of our fourth quarter 2023 impairment test, the fair value of the Protective Solutions reporting unit exceeded its carrying value by approximately 6% of the carrying value.

An increase, in isolation, to the discount rate of 60 basis points, a decrease of 90 basis points in the projected net sales growth assumption, or a decrease of 120 basis points in the projected EBITDA growth, would each result in the fair value of the reporting unit being less than its carrying value.

In our annual review of goodwill for impairment in the fourth quarter of 2023, the fair value of all of the other reporting units was substantially in excess of its carrying value.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis